A blog on things sports and economics related in New Zealand and abroad.

Thursday, 3 November 2016

Pondering pugilistic price discrimination .... maximising the value of the world title fight

News today revealed that Joseph Parker's WBO world heavyweight title fight against Mexican opponent Andy Ruiz will take place in Auckland on December 10 at a venue to be decided. The fight will take place without central government funding in big a about-turn from last week's announcement from Parker's promoters Duco when they withdrew their application for government funding that the fight was 80% likely to head offshore.

It is not 100% privately funded, though. One of the backers of the Parker camp is the Auckland City events arm ATEED, so there are already taxpayer dollars being funneled into the fight.

Now that the fight is taking place in Auckland, the question becomes whether the fight will generate economic benefits for the city and for New Zealand. In short, the benefits are likely to be confined to Auckland city and are not likely to spill over outside the city boundaries. The extremely short-term nature of the event itself will likely mean that any impact is short and sharp - don't expect longer-term economic impacts - even if Parker happens to win the fight. We can also expect the promoters to attempt to extract as much of the local consumer benefit in the form of higher broadcast prices and ticket prices. This isn't extortion or in any way unfair - it is market forces at work. Duco is a monopolist here - and they have the ability to set the price people must pay to see the fight. Parker vs Ruiz will be the biggest and most important fight ever staged in New Zealand, and people will be willing to pay to watch it. David Tua vs Shane Cameron was a big fight in New Zealand and attracted a huge amount of interest - this fight will be even bigger.

There is an interesting option that is on the table for Duco that they have already done but now that the stakes are as high as they have ever been (for boxing promoters in New Zealand), do they have the same willingness to test the market's willingness to pay for this fight? That option is perfect price discrimination - something that Duco did for Parker's fight with Carlos Takam in May of this year. This was labelled by promoter Dean Lonergan as

"an entertaining experiment in microeconomics"

In the Takam fight, Duco auctioned off 520 general admission tickets at $1 reserve on TradeMe. The intention of this experiment was an attempt to eliminate the possibility of scalping occurring with these tickets - people buying cheap and selling at higher prices.

With interest in this fight likely to be significantly greater than what it was for the Takam fight, it will be very interesting to see if Duco try it again. If anything, they have more to gain from giving it another go - one would expect the willingness to pay for a title fight to be much greater than for a build-up fight. Yet there is always a risk that they may not make the money that they are seeking - but they are likely to sell the tickets and fill the venue. At the same time, charging a fixed price is not a sure bet either - people might decide that the price is simply too steep and there could be empty seats as a result. There is also the possibility that the price might be set too low - and scalping could occur.

That they have already tried the auction method is a credit to the promoters. Only they will know whether it paid off last time. It would be fascinating to see Duco try this again because of the potential gains the practice offers them as sellers of a sought-after commodity (which are potentially much higher with this fight). Even if it was for a small proportion of tickets, it is a way of letting the market decide what the ticket is worth.

Lonergan also mentioned that

"You'd never get the New Zealand Rugby Union doing what we're doing because they'd see it as too controversial".

This is Duco's version of a top-tier All Blacks test - their World Cup final - will they be game enough to roll the dice once more?